Kroger's (KR) Deal With Alibaba Ups the Grocery Retail Game
In order to further strengthen its digital operations, The Kroger Co. KR joined forces with Alibaba to launch Our Brands through the latter’s Tmall platform. With this deal, Kroger will venture into the international market, specifically China, by opening an online store on Alibaba’s Tmall. This move also supports the company’s Restock Kroger initiative that aims at refurbishing its supermarkets, reducing prices and enhancing store technology to provide hassle-free shopping experience to its customers.
The company intends to test this initiative by initially offering selective Simple Truth products such as nuts, dietary supplements etc. This will enable Chinese customers access America’s largest natural and organic brand that recorded more than $2 billion annual sales in 2018. Additionally, the deal will help in meeting growing demand in China for overseas nutrient products, driven by the country's increased focus on health and wellness.
In fact, in order to dominate online grocery sales, Walmart WMT has recently collaborated with the second-largest Chinese e-commerce giant JD.com and Amazon AMZN has acquired specialty retailer Whole Foods Market. Following these, Cincinnati based Kroger is undertaking several digital efforts to catch up with its competitors. Prior to the above-mentioned agreement, Kroger inked another deal with British online grocery delivery company Ocado and acquired Home Chef, a meal-kit provider. Also, it introduced Kroger Ship — a U.S. online shopping service. We note that the launch of Kroger Ship on the lines of Amazon’s Prime Pantry and Target’s TGT Restock service is crucial. This has clearly proved Kroger’s potential to stay abreast in the highly-competitive and evolving grocery space.
Among the above-mentioned acquisitions, the deal with Ocado is part of the company’s Restock Kroger program. Per the agreement, Ocado is likely to develop three automated warehouse facilities this year and has plans to take the count to 20 in the first three years. Additionally, Kroger is looking to expand its Scan, Bag, Pay & Go and Self-CheckOut program to nearly 400 locations in 2018.
Further, the company’s latest deal with Nuro — the maker of driverless road vehicle — to deliver groceries at customers’ door steps using autonomous vehicles is just another initiative to take the fight to its peers. Customers via Kroger's ClickList ordering system and Nuro's app can place same-day delivery orders.
Kroger’s continued focus to bolster its digital business helped it win investors’ confidence. Notably, shares of this Zacks Rank #3 (Hold) company surged 22.7%, outperforming the industry’s growth of 18% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Kroger offloaded its convenience store business early this year and is looking for a potential sale of its Turkey Hill business. With these divestments, Kroger intends to narrow its non-grocery footprint so that the proceeds from sale can be utilized for expanding its grocery offerings as well as e-commerce presence.
All said, Kroger is trying all means to stay afloat and attain incremental revenues. We believe that these strategies are likely to bolster the company’s top line growth and drive the stock further.
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